The literature on migrants’ motivation to remit ranges from self-interest to altruism, where studies analyze the impact from home country interest rates or interest differentials between home and host countries. We reinterpret the interest rate elasticity of remittances as a form of debt-repayment responsiveness rather than based on opportunistic motivation. Modelling altruistic transfer and debt-repayment, we find for a panel of countries that the long-run responsiveness of remittances to changes in real lending rates is negative. This suggests that an expansionary (contractionary) monetary policy is most likely to lead to an increase (reduction) in remittances in the long-run. In contrast to this, the short-run impact of interest rate changes on remittances is positive.
Keywords
Remittances, debt-migration, migration indebtedness, temporary migration, real interest rates, panel data.
Authors
Gazi M. Hassan (corresponding author), Department of Economics, University of Waikato; Email: gmhassan@waikato.ac.nz
Mark J. Holmes, Department of Economics, University of Waikato; Email: holmesmj@waikato.ac.nz